A ‘Rent Revolution’ hits Bhopal

Rs. 35,000 rent for a house 15 km from the city centre is no longer a heart-stopper in the state capital thanks to a floating population of professionals and snazzy new housing colonies which are pandering to their demands

Property prices in Bhopal have gone through the roof but have rents kept pace with increasing property prices? The jury is still out on the issue with the city exhibiting unorthodox trends in rental rates for both domestic and commercial accommodations. New properties coming up on the outskirts of Bhopal are fetching the highest possible rent, while old properties located in the heart of the city are good enough only to fetch a pittance as a percentage of the value of the property.

Housing complexes located even 20 km from the city centre are fetching the highest domestic rents Bhopal has ever seen. The growing number of people who are coming and settling here for professional reasons do not mind paying comparatively high rentals as long as the accommodation provides them the service and quality they are used to in a metro.

Lieutenant (Rtd) Vinay Bhadauria of Indus Builders and Developers says that unlike metros, distances have not as yet become an issue in choosing the location of a house in Bhopal. “Even if a person has his workplace in MP Nagar or TT Nagar, he can stay at any of the new residential colonies that have come up around Hoshangabad road or Kolar road. The travel time to the workplace or any major shopping or commercial establishment is still between 20-30 minutes - which is not much for someone who has moved from Mumbai or Delhi. This is why people are willing to pay high rents and stay slightly outside the city provided they get the lifestyle they desire,” he says. He adds that colonies like Shree Golden City (off Hoshangabad road), Eco City, Kings Park and Ruchi Lifescapes are fetching good rents for house-owners because they come equipped with modern amenities. A 3,000 sq feet plot with a built-up area of about 2,500 sq feet can easily fetch a rent of Rs. 30,000- 35,000 per month at these colonies, Bhadauria says, adding that the rent is not only for the large plot and built-up area but also for facilities like swimming pool, gymnasium, power backup etc. A new house in many of these cost around 75 lakh and if these fetch

30,000 per month as rent then its good return on investment considering that the value of the property is also appreciating simultaneously. Bhadauria says that in industry terms a return of 0.7 % to 1 % per month as rental income is a good return on investment.

President, Confederation of Real Estate Developers Association of India (CREDAI), central India chapter Ajay Mohgaonkar says that good quality and newer construction always fetches a high rental income. “Since distance is not an issue in Bhopal, people prefer taking up newer houses on rent as the older ones have problems that start showing with time,” he says.

Most of the houses in the newer colonies with high rent are being taken up by people who are in Bhopal till the time their job necessitates them to be here.

Contrast this with the rentals fetched by properties located in the heart of the city, close to the business districts and other amenities like shopping malls and markets. The older residential areas like Arera Colony or even Shyamla Hills is not fetching as much by way of rental incomes. “A 6,000 sq feet plot in Arera Colony would cost anything upwards of Rs. 6 crore and even if it has a built-up area of 4,000 sq feet, it would at best fetch a rent of Rs. 30,000 per month. In percentage terms, it is barely 0.05% per month which is a pittance,” says Vijay, a broker who deals with renting out houses and commercial spaces. 1,000 sq feet flat at Ansal Apartments fetches Rs. 10,000 as rent while a furnished flat in the same size and locality would fetch Rs. 15,000.

More centrally located residential colonies like Malviya Nagar and Professor’s Colony have also lost out on the rent income game. “Constructions here date back to the 1960s and 70s and require constant repair. Also a lot of people prefer less congested areas to retire to after work,” says Vijay. The biggest losers in the rent game are the Old City areas. While property prices have appreciated all across the city - in varying degrees -- rental income in even the newer colonies coming up around the airport and older colonies like Koh-e-Fiza and Idgah Hills have not increased to the extent they have in colonies towards the southern side of the city. “The biggest reason for rentals being low in the Old City area and even property prices not appreciating is the lack of civic development. There is a sharp contrast in the work done by civic agencies in new Bhopal and old Bhopal, and reflects in the rents charged in these areas also,” says Bhadauria. “Anyone wanting to live in a particular area wants certain civic amenities -- wide roads, steady drinking water and electricity supply, garbage collection and adequate parking space. Old city areas are found wanting in all of these parameters,” he says.

Also adversely affected by the high rents are government employees who do not get a government accommodation and are paid house rent allowance on the basis of their salary and the size of the city they are living in. “I am entitled to about Rs. 5,000 as house rent. This would get me a decent size house only in an adjoining district and not within the city,” says a Central services officer who has just been posted to Bhopal.

Commercial rent: The trend for rents in commercial properties in the city has also undergone a tectonic shift over the last three decades. Anyone wanting to set up a business in Bhopal of the 1960s, 70s and 80s preferred areas such as Hamidia Road, Peer Gate, Imami Gate, Jehangirabad, Ibrahimpura to set up medium scale businesses. The upmarket businesses by the 1970s and 1980s started moving to New Market, GTB complex and Malviya Nagar. Numerous nationalised banks had their most profitable branches in Hamidia Road, besides restaurants, auto part dealerships and cycle shops. As Bhopal expanded southwards and the Old City areas did not keep pace with the newer planned parts of town in terms of civic amenities, the former began to lose out on the rents it could demand. “Commercial rents are perhaps the highest in MP Nagar with new businesses like banks, automobile dealerships and restaurants,” says Abhijeet Saboo, a town-planner and architect from Texas A&M University. In the last two decades or so no, new business has chosen not to set up shop in old Bhopal.

“There is almost a new and old Bhopal divide with residents not wanting to go to the Old City unless it’s absolutely necessary, given all the troubles it entails going there,” he says.

This lop-sided development has led to house-owners renting out their residential premises for commercial ventures. The Bhopal Municipal Corporation (BMC) has been asked to explain how more than 200 premises are running commercial enterprises out of residential properties in Arera Colony alone. Besides businesses wanting to relocate to new Bhopal, owners of properties in new Bhopal also want to maximize their returns from their properties by way of rent. In that sense commercial rent is fetching better returns than what a person would get for renting the premises for being used as a house.

Rent as substantial income can be accrued only in the case when it is a commercial property. A prominent mall in the city has in fact only rented out space and has not sold any shops as the management sees this as a more effective way of realizing value.

Using rent to buy house: The post economic liberalization era made housing an affordable option for many -- primarily through bank loans that were being given out more liberally. A ‘buy-on-loan-pay-EMI-with-rent’ model emerged in early 2000. “This model remained viable for some years but with property prices increasing and home loan rates fluctuating, it has not remained a viable model anymore,” says Ajay Mohgaonkar of CREDAI. In some cases, this model is still viable for houses that cost upto Rs. 20 lakh, are new and are located within the city. They can still fetch rent that is close to the EMI amount to be paid to the bank.

Govt intervention: What are the options before the government if it wants to keep rents in check? Not many, say administrators and lawyers. Bhopal Collector Nikunj Shrivastava says that the administration hardly has a role in determining rent chargeable in an area. “As far as land prices are concerned, the circle rate is benchmark and the person purchasing land has to pay stamp duty as per the prevailing rate. Sometimes the circle rate -- if it happens to be more than the prevailing market rate -- determines the price at which land would be sold. However, in case of determining rent, the government cannot do much except when it has to rent a premise for itself in which it pays rent as per the approved rate,” he says. The IAS officer adds that the only option with the government by which it can influence rent rates is by controlling demand and supply -- which is done through development models for the city.

Disputes: Prominent lawyer Deepesh Joshi says that tenancy related legal conflicts have witnessed a sharp decline in the last few years. “The number of eviction suits being dealt with by court have dropped considerably mainly because people prefer out-of-court settlements. Cases drag on for years and the value of the property remains locked as a result of which people prefer such settlements," says Joshi. He adds that the MP Accommodation Control Act has been repealed and the new Act meant to replace it has not come into effect.

Students, new tenants: The proliferation of technical institutions in Bhopal over the last few years has attracted a large student population to the city. Students have actually changed the demographics of the city over the last decade. Rents have increased considerably in areas such as MP Nagar and Arera Colony where a large number of houses have been converted into hostels by the owners. “Giving out the house to many people rather than one tenant fetches much more rent,” says the owner of a hostel in MP Nagar.

Besides this, students are safer tenants, they cannot squat on a house, can be asked to leave without notice and do not have any legal protection, he adds. For students, however, it’s a Catch-22 situation as they are the ones having to cough up rents which have gone up because of a surge in their numbers in the city. “I pay Rs. 3,800 as rent for sharing a room in Arera Colony. This too has been revised thrice in the last one year,” says Shivali Pandey, an engineering student.

In the Old City areas, it is the Kashmiri students who have contributed to an upward revision of rent. The last few years have witnessed an arrival of numerous Kashmiri students -- numbering nearly 7,000 as per unofficial estimates -- who form the main tenant pool for landlords in these parts. “Kashmiri students give more rent and have pushed up rents in the Old City,” says Abdul Raqeeb, a resident of Koh-e-Fiza.